Stocks dip from Monday sugar rush - MARKET WRAP

A setback in Johnson and Johnson’s vaccine trials and the IMF warning of a ‘sharp adjustment’ in financial markets was enough to see stocks turn lower and the dollar catch a bid.

With the exception of Australia, Asian markets were flat and European indices all closed in the red but with losses of less than 1%. The move looks corrective after a burst higher on Monday.

 

Johnson & Johnson halts vaccine

A participant in the trial of Johnson & Johnson’s COVID-19 vaccine had an adverse reaction and the company paused all its trials. In a similar instance to the pause that happened with the Oxford / AstraZeneca in September. AstraZeneca has since resumed its trials everywhere except in the US and odds are the J&J trial will resume too. But while it is just a pause, it’s still a setback in a race that everyone has an interest in who finishes first. With J&J also reporting a rise in profits in its Q3 results, the shares were largely unaffected but the news did weigh on broader risk taking appetite.

 

Big banks double profits, investors not impressed

A more than doubling of profits over last quarter at JP Morgan Chase and Citigroup have got bank earnings season off to a good start. The banks set aside huge loan loss reserves in the first and second quarter of 2020 and improving economic outlook meant they needn’t do so again this time. JP Morgan set aside just $611m compared to $10.5billion last quarter. Citigroup set aside an extra $2.3 billion from $7.9 billion. However investors were non-too impressed and the stocks fell. There may have been a little unease about prospects for the banks heading into next year given their projections. JP Morgan lowered its forecasted unemployment for Q4 this year but kept its expectations for Q2 and Q4 2021 about the same.

 

IMF World Economic Outlook

Stocks pulled back, the dollar gained as a haven and bond yields moved lower as the IMF tempered its improved growth outlook with a warning on asset prices. The IMF’s Tobias Adrian suggested asset prices were being held aloft thanks to policy stimulus and that a delay to the economic recovery could see a sharp adjustment lower in prices. The IMF now expects a 4.4% contraction in 2020, better than the -4.9% forecast made in June and reduced its 2021 forecast to 5.2% from 5.4%.

 

Apple's iPhone 12

Options trading volumes go some way to explain a somewhat unexplainable 6% in Apple’s share prices yesterday. Call volumes were back up near the same levels of July and august pre the September tech wreck. The volumes come at the same time SoftBank is preparing an IPO while denying it was behind the huge options melt-up in the summer for tech stocks. It’s difficult to see what feature on the new iPhone that could impress investors so much to think it will make a material positive influence on forward earnings. However there is scope for disappointment – perhaps the idea of a margin-killing ‘mini edition’.

 

Day Ahead

Speeches from ECB’s Lagarde, Mersch and Lane

US PPI data

Bank of America earnings

Wells Fargo earnings

Goldman Sachs earnings

United Airlines earnings

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